MBA 8410- Real Estate Finance Flashcards
APR is based on what?
Actual cash recieved
What are the 3 kinds of prepayment penalties
Declining prepayment penalty, yield maintenance and defeasance
Declining Prepayment Penalty
Percentage fee decreases each year payment is NOT paid early
Yield Maintenance
The process of discounting the lenders lost return to a current present value and paying a fee equal to the current present value.
Defeasance
Collateral substitution where the borrow via an intermediary buys government securities that produce the same cashflows to the lender than the loan would have produced.
Why is securitization good?
It allows people to free up assets, which spreads out the risk and creates more liquidity for the market.
What is the Maturity Mismatch?
70’s tilt where soaring inflation crushed demand, expected inflation drives interest rates up but the inflation on income had not inflated to the anticipated levels so loans were not affordable.
What did the Maturity Mismatch lead to in the 80’s?
The savings and loan failures which created a lot of regulation from the government.
Benefits of a mortgage broker?
Wide reach for shopping debt options, “hand holding”, scrubs data for best presentation
Cons of a broker?
Lack control as all decisions are by the lender, costs are usually higher because of “middleman” prices
Benefits of a Banker?
Much more decision making and influencing that broker, costs can be lower
Cons of Bankers?
Typically do not offer “hand holding” and only offers debt options for the system in which they are employed.
What is securitization?
The process of selling the CMBS off.
What is the biggest difference between Freddie Mac and Fannie Mae?
Fannie SHARES the long term liability while Freddie TAKES the long term liability.
What are benefits to CMBS?
Relaxed underwriting process and sponsorship requirements, non recourse.
What are lenders looking for?
Experience, good balance sheet, and proper finances.
Who are the sponsors of the loan?
Developers or people who have more skin in the game and have majority ownership in the LLC of the project. Usually have more than 25% invested.
If you are looking for a lender with max leverage and LTV which lender will help?
Commercial Banking, and CMBS
Life Company Agencies?
Low rates and non recourse, but generally only go for “trophy” properties
Commercial Mortgage Backed Securities
Usually fund a lot of projects, relaxed sponsorship requirements, securitization process can be lengthy due to documentation.
Components of Commercial Banks Lending Process?
All property types, lower LTV’s
- offer construction financing
- rates are typically higher
- recourse loans
Components of Public Finance
Low interest rates, legal intensive with higher upfront costs, but tax equity is essentially free money.
What does the cap rate measure?
The overall riskiness of a deal.
Why can a lender hold back funds at the end of the underwriting
Based off of evidence EAR (Environmental Assessment Report) and PCA (Property Condition Assessment) that can hold off of money to be paid out.
